SegWit and the Lightning Network Explained

Understanding SegWit, SegWit2x, and the Lightning Network

SegWit, SegWit2x, and the Lightning Network (LN) are all terms that describe proposed changes to Bitcoin’s blockchain to allow for faster transactions.[5][6][7][8]

NOTE: More specifically, these are changes to code that have already begun or will begin soon but aren’t fully implemented (as of Oct 23rd 2017).

SegWit is a “soft fork” (a backwards compatible code change) that has been implemented on some cryptocurrencies (such as Litecoin).

Meanwhile SegWit2x (a hard fork) and the Lightning Network (neither a hard fork or soft fork but “an additional layer” which has also been embraced by Ethereum under the name Plasma) are proposed changes. Both SegWit2x and LN are predicated on SegWit’s code change.

These changes potentially affect all “coins” that use the Bitcoin blockchain (for example Bitcoin, Litecoin, DigiByte and Vertcoin) and, to what extent Ethereum implements Plasma, that will affect all coins on the Ethereum blockchain as well. TIP: A blockchain is a public record of transactions at the heart of cryptocurrencies.

To implement the changes requires “consensus” (like a democratic vote by those who use the Bitcoin network).

Debate over the direction of these changes has led the creation of new cryptocurrencies such as Bitcoin Cash (a “hard fork” off the Bitcoin blockchain meant to create a cryptocurrency with faster transaction times).

That is the gist of it, these are code changes to speed up transactions that are subject to democratic vote and debate. The details are way more heady than that. See the citations for more reading.

NOTE ON SEGWIT2x: SegWit and Lightening are not controversial measures. However, SegWit2x is extremely controversial. SegWit2x will create two different block chains and two different Bitcoins, just like other hard forks. However, unlike other hard forks, neither side wants to capitulate to the other. That means, as it stands, there will be two competing Bitcoins and it is likely the stronger will move to crush the weaker. Tense times.

Understanding the naming of SegWit, SegWit2x, and LN: The name SegWit is short for Segregated Witness. It has this odd name because it splits transactions into two segments, removing the unlocking signature (“witness” data) from the original portion and appending it as a separate structure at the end. The change is intended to solve a blockchain size limitation problem that reduces Bitcoin transaction speed. With that in mind, SegWit2x addresses the same issue by proposing 2mb blocks (hence the 2x part) and the Lightening Network (LN) seeks to solve this by allowing participants to transfer money to each other without having to make all their transactions public on the blockchain (… which would make transactions “lightening fast”).

TIP: Segwit, Segwit2x, Bitcoin Cash, and Bitcoin Gold are all different hard forks in Bitcoin that happened or are happening in 2017. The Segwits change the blockchain (and technically create new coins, but if everyone updates then only one coin is left). Cash and Gold created new coins on purpose with the intention of those coins staying around competing with Bitcoin as unique coins (Bitcoin doesn’t upgrade to embrace these coins, they fork off on their own and don’t look back). In other words, these are two different types of hard forks in terms of intention. The Segwits try to “fix” or “improve” Bitcoin’s network, Cash and Gold fork off and do their own thing as unique coins. Learn more about forks.